The unanimous Supreme Court made clear in Jesinoski that the "language [of §1635(a)] leaves no doubt that rescission is effected when the borrower notifies." Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. ___, 135 S.Ct. 790, at *5 (2015). Thus, "so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely." Id.
The phrase "rescission is effected" in the Court's opinion means that the transaction is rescinded, and that the security interest has become "void upon such a rescission." 15 U.S.C. § 1635(a). Specifically, in addressing the lender's argument that a rescission notice alone would not suffice, the Court specifically noted that it "is true that rescission traditionally required . . . that the rescinding party return what he receives before a rescission could be effected." Id. at *6. But that is not the case under TILA because "it is also true that the Act disclaims the common-law condition precedent to rescission at law" and does not "codif[y] rescission in equity." Id. Instead, the "clear import of §1635(a) is that a borrower need only provide written notice to a lender in order to exercise his right to rescind", which exercise results in a "unilaterally rescinded transaction" where "§1635(b) alters the traditional process for unwinding [the] transaction." Id. at *7. In other words, while it used to be the case that the rescinding party was required to tender "before a rescission could be effected," id. at *6, "the Act disclaims [that] condition precedent," so that "the borrower need only provide written notice," id. at *7, and "rescission is effected when the borrower notifies," id. at *5. The exercise of the right to rescind pursuant to statute results in rescission itself.
Further, it doesn't matter if the lender disputes the effected rescission. Although the lender in Jesinoski "argue[d] that if the parties dispute the adequacy of the disclosures—and thus the continued availability of the right to rescind—then written notice does not suffice," the Supreme Court disagreed and remarked that "section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions." 135 S. Ct. at *5. The unanimous Supreme Court explained that "the fact that [rescission] can be a consequence of judicial action when §1635(g) is triggered in no way suggests that it can only follow from such action," and that TILA's neighboring provisions have "no bearing upon whether and how borrower-rescission under §1635(a) may occur." Id. at *6. Thus, a lender's disagreement per se cannot undo a non-judicially effected borrower-rescission triggered by operation of §§1635(a) and (b), just like a borrower's disagreement with an effected not-judicial foreclosure sale cannot undo such a sale.
Lastly, both TILA and Jesinoski equate the "exercise of [one's] right to rescind" with "rescission" of that transaction. Specifically, §1635(b) states that "[w]hen an obligor exercises his right to rescind under subsection (a) [by notifying the creditor], any security interest given by the obligor . . . becomes void upon such a rescission." The word "such" would be rendered superfluous if the phrase "becomes void upon such a rescission" were read to refer not to the obligor's exercise of his right to rescind, but to some other rescission to be accomplished later. This reading would convert the phrase "becomes void upon such a rescission" into "becomes void upon rescission". However, the statute does not say "becomes void upon rescission," but rather "becomes void upon such a rescission," harkening back to the obligor's exercise of his right to rescind and demonstrating that the exercise of the right results in a rescission of the transaction.
The unanimous Jesinoski opinion tracks this structure of TILA and likewise treats the exercise of the right to rescind as rescission itself. See 135 S.Ct. at *5, *7 ("a borrower need only provide written notice to a lender in order to exercise his right to rescind"; "rescission is effected when the borrower notifies"; "so long as the borrower notifies within three years . . ., his rescission is timely").
For the above reasons, the statutory scheme and the unanimous Supreme Court are clear that rescission is effected solely by providing the creditor with a notice of rescission, in derogation of the prior "common law practice." The necessary implication is that, once rescission was effected by operation of the statutory scheme, no judicial action is necessary "to award rescission." Moreover, where a servicer failed to timely challenge the effected rescission, that rescission stands, just like an accomplished non-judicial sale would stand after the appeal time has passed. To the extent that a servicer wishes to challenge the statutorily-accomplished rescission, it must demonstrate that the Court still has jurisdiction and authority to undo such a rescission and to reinstate the voided security interest. To the extent that a servicer may, in light of the effected rescission, seek modification of the procedures spelled out in §1635(b) and re-order the steps remaining in unwinding the unilaterally rescinded transaction, it again must provide valid reasons for such a judicial modification.
Indeed,"section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions." Jesinoski, 135 S.Ct. at *5. Thus, if for example, the borrower notifies the servicer within three days that they rescinded the loan and the servicer disregards that notice for 20 days, the borrower can then file an action seeking to compel the bank to perform its statutory obligations in order to unwind "such a unilaterally rescinded transaction," id. at *7.
All the borrower would need to allege is that (1) they took out a TILA loan, that (2) they notified the servicer within the statutory period of their decision to rescind, and that (3) the servicer did not "return to the obligor any money or property given" and did not "take any action necessary or appropriate to reflect the termination of any security interest created under the transaction." 15 U.S.C. § 1635(b). Nothing else would need to be alleged because "[w]hen an obligor exercises his right to rescind under subsection (a) of this section [by notifying the creditor], he is not liable for any finance or other charge, and any security interest given by the obligor . . . becomes void upon such a rescission." Id. In other words, rescission occurs not as a result of judicial action, but by operation of statutory law, namely, sections 1635(a) & (b).
The same applies to a notification to rescind mailed within three years of the consummation of the loan transaction. If the servicer fails to act upon such a notification and the resulting nonjudicial rescission within 20 days as set forth in the statute, it does so at its own peril and puts itself into the same position as an unwitting homeowner who fails to challenge a nonjudicial sale until after it's already accomplished by operation of the statutory foreclosure scheme.
The crux of the matter is, post-rescission the burden is on the servicer to challenge the statutorily accomplished rescission, just as it would be on the unwitting homeowner post-foreclosure.
The phrase "rescission is effected" in the Court's opinion means that the transaction is rescinded, and that the security interest has become "void upon such a rescission." 15 U.S.C. § 1635(a). Specifically, in addressing the lender's argument that a rescission notice alone would not suffice, the Court specifically noted that it "is true that rescission traditionally required . . . that the rescinding party return what he receives before a rescission could be effected." Id. at *6. But that is not the case under TILA because "it is also true that the Act disclaims the common-law condition precedent to rescission at law" and does not "codif[y] rescission in equity." Id. Instead, the "clear import of §1635(a) is that a borrower need only provide written notice to a lender in order to exercise his right to rescind", which exercise results in a "unilaterally rescinded transaction" where "§1635(b) alters the traditional process for unwinding [the] transaction." Id. at *7. In other words, while it used to be the case that the rescinding party was required to tender "before a rescission could be effected," id. at *6, "the Act disclaims [that] condition precedent," so that "the borrower need only provide written notice," id. at *7, and "rescission is effected when the borrower notifies," id. at *5. The exercise of the right to rescind pursuant to statute results in rescission itself.
Further, it doesn't matter if the lender disputes the effected rescission. Although the lender in Jesinoski "argue[d] that if the parties dispute the adequacy of the disclosures—and thus the continued availability of the right to rescind—then written notice does not suffice," the Supreme Court disagreed and remarked that "section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions." 135 S. Ct. at *5. The unanimous Supreme Court explained that "the fact that [rescission] can be a consequence of judicial action when §1635(g) is triggered in no way suggests that it can only follow from such action," and that TILA's neighboring provisions have "no bearing upon whether and how borrower-rescission under §1635(a) may occur." Id. at *6. Thus, a lender's disagreement per se cannot undo a non-judicially effected borrower-rescission triggered by operation of §§1635(a) and (b), just like a borrower's disagreement with an effected not-judicial foreclosure sale cannot undo such a sale.
Lastly, both TILA and Jesinoski equate the "exercise of [one's] right to rescind" with "rescission" of that transaction. Specifically, §1635(b) states that "[w]hen an obligor exercises his right to rescind under subsection (a) [by notifying the creditor], any security interest given by the obligor . . . becomes void upon such a rescission." The word "such" would be rendered superfluous if the phrase "becomes void upon such a rescission" were read to refer not to the obligor's exercise of his right to rescind, but to some other rescission to be accomplished later. This reading would convert the phrase "becomes void upon such a rescission" into "becomes void upon rescission". However, the statute does not say "becomes void upon rescission," but rather "becomes void upon such a rescission," harkening back to the obligor's exercise of his right to rescind and demonstrating that the exercise of the right results in a rescission of the transaction.
The unanimous Jesinoski opinion tracks this structure of TILA and likewise treats the exercise of the right to rescind as rescission itself. See 135 S.Ct. at *5, *7 ("a borrower need only provide written notice to a lender in order to exercise his right to rescind"; "rescission is effected when the borrower notifies"; "so long as the borrower notifies within three years . . ., his rescission is timely").
For the above reasons, the statutory scheme and the unanimous Supreme Court are clear that rescission is effected solely by providing the creditor with a notice of rescission, in derogation of the prior "common law practice." The necessary implication is that, once rescission was effected by operation of the statutory scheme, no judicial action is necessary "to award rescission." Moreover, where a servicer failed to timely challenge the effected rescission, that rescission stands, just like an accomplished non-judicial sale would stand after the appeal time has passed. To the extent that a servicer wishes to challenge the statutorily-accomplished rescission, it must demonstrate that the Court still has jurisdiction and authority to undo such a rescission and to reinstate the voided security interest. To the extent that a servicer may, in light of the effected rescission, seek modification of the procedures spelled out in §1635(b) and re-order the steps remaining in unwinding the unilaterally rescinded transaction, it again must provide valid reasons for such a judicial modification.
Indeed,"section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions." Jesinoski, 135 S.Ct. at *5. Thus, if for example, the borrower notifies the servicer within three days that they rescinded the loan and the servicer disregards that notice for 20 days, the borrower can then file an action seeking to compel the bank to perform its statutory obligations in order to unwind "such a unilaterally rescinded transaction," id. at *7.
All the borrower would need to allege is that (1) they took out a TILA loan, that (2) they notified the servicer within the statutory period of their decision to rescind, and that (3) the servicer did not "return to the obligor any money or property given" and did not "take any action necessary or appropriate to reflect the termination of any security interest created under the transaction." 15 U.S.C. § 1635(b). Nothing else would need to be alleged because "[w]hen an obligor exercises his right to rescind under subsection (a) of this section [by notifying the creditor], he is not liable for any finance or other charge, and any security interest given by the obligor . . . becomes void upon such a rescission." Id. In other words, rescission occurs not as a result of judicial action, but by operation of statutory law, namely, sections 1635(a) & (b).
The same applies to a notification to rescind mailed within three years of the consummation of the loan transaction. If the servicer fails to act upon such a notification and the resulting nonjudicial rescission within 20 days as set forth in the statute, it does so at its own peril and puts itself into the same position as an unwitting homeowner who fails to challenge a nonjudicial sale until after it's already accomplished by operation of the statutory foreclosure scheme.
The crux of the matter is, post-rescission the burden is on the servicer to challenge the statutorily accomplished rescission, just as it would be on the unwitting homeowner post-foreclosure.
THANK YOU GREG
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